Business Context and Reporting Period
The filing is for Oasis Petroleum Inc., not Chord Energy Corp., for the quarter and nine months ended September 30, 2016. Oasis was an independent exploration and production company focused on unconventional oil and natural gas resources in the North Dakota and Montana regions of the Williston Basin. It also operated well services and midstream services segments.
The condensed consolidated financial statements are unaudited. Results cover the three and nine months ended September 30, 2016, compared with the corresponding 2015 periods.
Key Financial Metrics
| Metric | Q3 2016 | Q3 2015 | 9M 2016 | 9M 2015 |
|---|---|---|---|---|
| Total revenue | $177.3 million | $197.2 million | $486.7 million | $607.7 million |
| Operating income (loss) | $(25.7) million | $(19.9) million | $(129.1) million | $(61.0) million |
| Net income (loss) | $(33.9) million | $27.1 million | $(188.3) million | $(44.2) million |
| Diluted EPS | $(0.19) | $0.20 | $(1.09) | $(0.35) |
| Net cash provided by operating activities | Not separately reported in the statement of cash flows | Not separately reported | $123.4 million | $280.3 million |
| Capital expenditures, cash basis | Not separately reported | Not separately reported | $340.3 million | $740.6 million |
| Adjusted EBITDA | $104.4 million | $189.2 million | $369.4 million | $643.5 million |
| Free cash flow | $(3.4) million | $76.2 million | $(25.4) million | $16.8 million |
Approximate consolidated operating margins were (14.5%) in Q3 2016 and (26.5%) for the first nine months; approximate net margins were (19.1%) and (38.7%), respectively.
- Average daily production was 48,509 Boe in Q3 and 49,440 Boe for the first nine months, down 4% and 2%, respectively, from the comparable periods.
- Q3 oil revenue was $149.0 million and natural gas revenue was $9.2 million. Oil sales price without derivative settlements averaged $40.54 per barrel; natural gas averaged $1.84 per Mcf.
- Derivative instruments produced a $20.8 million Q3 gain but a $55.6 million nine-month loss, compared with a $111.3 million nine-month gain in 2015.
- Cash and cash equivalents were $13.8 million at September 30, 2016, compared with $9.7 million at December 31, 2015. Working capital was negative $68.3 million.
- Total long-term debt was $2.126 billion, including $195.0 million drawn under the revolving facility and $2.053 billion principal amount of senior unsecured notes, including convertible notes.
- The revolving facility had a $1.150 billion borrowing base and $942.7 million of unused committed capacity after $12.3 million of letters of credit. Reported total liquidity was $956.5 million.
- Stockholders’ equity increased to $2.388 billion from $2.319 billion, primarily reflecting a February equity offering and the equity component of the convertible notes, partly offset by the net loss.
Material Changes Versus Prior Comparable Period
- Q3 revenue declined 10%, while nine-month revenue declined 20%, primarily because of lower oil volumes and commodity prices.
- Nine-month oil revenue fell $129.0 million, and average oil price excluding derivative settlements declined 18% to $36.57 per barrel. Natural gas production increased, but realized natural gas prices declined 26% for the nine-month period.
- Q3 net income of $27.1 million in 2015 converted to a $33.9 million loss in 2016. The nine-month loss widened to $188.3 million from $44.2 million.
- Operating expenses decreased $14.3 million in Q3 and $54.3 million for the nine months, mainly from lower production, lower DD&A, lower production taxes and reduced impairment charges. General and administrative expense increased modestly.
- Operating cash flow declined $156.9 million, or 56%, for the nine months, reflecting lower realized commodity prices. Capital expenditures declined $400.3 million, or 54%.
- The company reduced its workforce to 464 full-time employees from 562 at September 30, 2015 and operated one fracturing fleet in response to the low-price environment.
- In September 2016, Oasis issued $300.0 million of 2.625% convertible notes due 2023 and repurchased $447.0 million principal amount of senior notes during the nine months. The transactions reduced near-term senior-note balances but increased convertible debt and produced a $13.8 million Q3 loss on extinguishment of debt.
Guidance, Outlook, Risks and Unusual Items
- Management reduced 2016 capital spending because of sustained low oil prices and concentrated drilling in the most economic Williston Basin areas. The stated 2016 capital budget, excluding the later acquisition, was $400 million, including $340 million for E&P and $60 million for non-E&P activities.
- Management stated that available cash, operating cash flow, derivative settlements, equity proceeds and revolver capacity were expected to fund the remaining 2016 budget and the planned acquisition.
- At September 30, 2016, the company had 80 gross operated wells waiting on completion and completed 17 gross, or 7.1 net, operated wells during Q3.
- Commodity prices remain the principal risk. Management estimated that a roughly 25% decline in expected future commodity prices could cause additional proved-property impairment charges potentially exceeding $2.3 billion using a 10% discount rate.
- The company had a net derivative liability of $15.7 million at September 30. A 10% increase in crude oil prices was estimated to reduce derivative fair value by approximately $49.1 million, while a 10% decrease was estimated to increase it by approximately $47.9 million.
- Contractual cash obligations totaled approximately $3.512 billion, including senior notes, interest, revolver borrowings, asset-retirement obligations, volume commitments and purchase agreements. Estimated volume commitment obligations were $443.1 million.
- Management reported compliance with credit-facility covenants. Consolidated EBITDAX to interest expense was 3.6x versus a 2.5x minimum, and the reported current ratio was 4.2x versus a 1.0x minimum.
- Subsequent to quarter-end, Oasis reaffirmed the $1.150 billion borrowing base, completed a $584.0 million net equity offering, and agreed to acquire approximately 55,000 net Williston Basin acres from SM Energy for approximately $785.0 million, subject to customary closing conditions and an expected December 1, 2016 closing.
- The filing reports no material changes to previously disclosed risk factors other than the potential dilution and market impact from conversion of the senior convertible notes. Legal proceedings were described as ordinary-course matters not expected to be material.
Investor Verification Checklist
- Verify the issuer identity: the supplied filing is Oasis Petroleum Inc.’s 2016 Form 10-Q, not a Chord Energy Corp. filing.
- Reconcile the filing’s Q3 highlights, which state $123.4 million of operating cash flow for the three-month period, with the audited-format cash-flow statement and MD&A tables, which clearly report $123.4 million for the nine months ended September 30, 2016.
- Assess liquidity after the planned $785.0 million acquisition, including the October equity offering, expected revolver borrowings and purchase-price adjustments.
- Review the borrowing-base redetermination terms, 2019 note maturity or refinancing requirement, covenant headroom and the company’s ability to refinance or repay debt.
- Evaluate sensitivity to oil prices, derivative ceilings and sub-floors, transportation differentials, and potential proved-property impairment.
- Confirm closing, funding and integration outcomes for the announced Williston Basin acquisition and the effect on production, reserves, capital spending and leverage.